UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

x Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934. 
For the quarterly period ended: June 30, 2009

OR

o Transition Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934. 
For the transition period from: ________  to ________

Commission File Number: 000-030813

AlphaRx, Inc.(Name of Small Business Issuer in its Charter)

|Delaware                        | 98-0416123                          
|------------------------------- | ------------------------------------
|(State or other jurisdiction of | (I.R.S. Employer Identification No.)
|incorporation or organization)  |                                     

168 Konrad Crescent, Suite 200 Markham, Ontario, Canada L3R
9T9 (Address of principal executive offices)

Registrant's telephone number, including area code: (905)
479-3245

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value (Title of Class)

Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.

Yes x               
No o

The number of outstanding shares of registrant's Common Stock
on August 12, 2009 was 92,371,192.

Transitional Small Business Disclosure Format.

Yes o               
No x

1

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ALPHARX, INC.

FORM 10-Q

JUNE30, 2009

TABLE OF CONTENTS

|Interim Consolidated Balance Sheets as at
      June 30, 2009 (Unaudited) and September 30, 2008 (Audited)                                                     | 3     
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------
|Unaudited Interim Consolidated Statements of Operations and
      Comprehensive Loss for the three and nine months ended June 30, 2009 and
      June 30, 2008 | 4     
|Unaudited Interim Consolidated Statements of
    Changes in Shareholders' Deficit for the period ended June
    30, 2009                                       | 5     
|Unaudited Interim Consolidated Statements of Cash Flow for
      the three and nine months ended June 30, 2009 and June 30, 2008                               | 6     
|Condensed Notes to Unaudited Interim
      Consolidated Financial Statements                                                                                   | 7 - 12
|Management's Discussion and Analysis of Financial Condition
      and Plan of Operation                                                                        | 13-20 
|Other Information, signatures and exhibits                                                                                                                     | 21    

2

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ALPHARx, INC.INTERIM CONSOLIDATED BALANCE SHEETS
AS AT JUNE 30, 2009 AND SEPTEMBER 30, 2008 (All amounts in US Dollars)

|                                                                                                                          |   | June 30, 2009 |   |   | September 30, 2008 |  
|------------------------------------------------------------------------------------------------------------------------- | - | ------------- | - | - | ------------------ | -
|                                                                                                                          |   | Unaudited     |   |   | Audited            |  
|CURRENT ASSETS                                                                                                            |   |               |   |   |                    |  
|                                                                                                                          |   |               |   |   |                    |  
|Cash and Cash Equivalents                                                                                                 | $ | 94,570        |   | $ | 24,623             |  
|Accounts Receivable, net                                                                                                  |   | 6,956         |   |   | 8,429              |  
|Other Assets                                                                                                              |   | 3,259         |   |   | -                  |  
|TOTAL CURRENT ASSETS                                                                                                      |   | 104,785       |   |   | 33,052             |  
|                                                                                                                          |   |               |   |   |                    |  
|PROPERTY, PLANT and EQUIPMENT, net                                                                                        |   | 98,271        |   |   | 149,498            |  
|                                                                                                                          |   |               |   |   |                    |  
|TOTAL ASSETS                                                                                                              |   | 203,056       |   |   | 182,550            |  
|                                                                                                                          |   |               |   |   |                    |  
|Going Concern (note 2)                                                                                                    |   |               |   |   |                    |  
|                                                                                                                          |   |               |   |   |                    |  
|CURRENT LIABILITIES                                                                                                       |   |               |   |   |                    |  
|Accounts Payable and Accrued
      Liabilities                                                                            |   | 372,793       |   |   | 316,306            |  
|Notes Payable (note 4)                                                                                                    |   | 526,408       |   |   | 403,665            |  
|Deferred Revenue                                                                                                          |   | 34,910        |   |   | -                  |  
|TOTAL CURRENT LIABILITIES                                                                                                 |   | 934,111       |   |   | 719,971            |  
|                                                                                                                          |   |               |   |   |                    |  
|                                                                                                                          |   |               |   |   |                    |  
|SHAREHOLDERS' EQUITY/(DEFICIT)                                                                                            |   |               |   |   |                    |  
|Common Stock: $ 0.0001 par value,                                                                                         |   |               |   |   |                    |  
|Authorized: 250,000,000 shares; Issued and
      outstanding June 30, 2009 and September 30, 2008: 92,371,192 (Notes 6-8) |   | 9,238         |   |   | 9,238              |  
|Additional paid-in capital                                                                                                |   | 17,015,213    |   |   | 16,978,351         |  
|Deficit                                                                                                                   |   | (17,853,244   | ) |   | (17,619,930        | )
|Accumulated Other Comprehensive Income/(loss)                                                                             |   | (3,394        | ) |   | (6,704             | )
|TOTAL ALPHARX, INC. SHAREHOLDERS' DEFICIT                                                                                 |   | (832,187      | ) |   | (639,045           | )
|Non-controlling Interest (Note 5)                                                                                         |   | 101,132       |   |   | 101,624            |  
|TOTAL DEFICIT                                                                                                             |   | (731,055      | ) |   | (537,421           | )
|                                                                                                                          |   |               |   |   |                    |  
|TOTAL LIABILITIES AND DEFICIT                                                                                             | $ | 203,056       |   | $ | 182,550            |  

|Signed: Michael Lee | Signed: Dr. David Milroy
|------------------- | ------------------------
|Director            | Director                

See condensed notes to unaudited interim consolidated financial
statements

3

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ALPHARx, INC.INTERIM CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE LOSS FOR THE THREE MONTHS AND NINE MONTHS ENDED
JUNE 30, 2009 AND 2008 (All amounts in US Dollars)
(UNAUDITED)

|                                                                                    |   | 3 months ended |   |   | 3 months ended |   |   | 9 months ended |   |   | 9 months ended |  
|----------------------------------------------------------------------------------- | - | -------------- | - | - | -------------- | - | - | -------------- | - | - | -------------- | -
|                                                                                    |   | June 30, 2009  |   |   | June 30, 2008  |   |   | June 30, 2009  |   |   | June 30, 2008  |  
|                                                                                    |   |                |   |   |                |   |   |                |   |   |                |  
|Royalties                                                                           | $ | 16,323         |   | $ | 46,798         |   | $ | 48,252         |   | $ | 81,173         |  
|Consulting Revenues                                                                 |   | 4,659          |   |   | -              |   |   | 240,413        |   |   | -              |  
|Total Revenues                                                                      |   | 20,982         |   |   | 46,798         |   |   | 288,665        |   |   | 81,173         |  
|                                                                                    |   |                |   |   |                |   |   |                |   |   |                |  
|General and Administrative
      Expenses                                           |   | 184,883        |   |   | 176,523        |   |   | 310,621        |   |   | 748,191        |  
|Research and Development Expenses                                                   |   | 39,586         |   |   | 137,189        |   |   | 126,807        |   |   | 542,623        |  
|Depreciation                                                                        |   | 16,444         |   |   | 18,775         |   |   | 48,788         |   |   | 60,006         |  
|LOSS FROM OPERATIONS                                                                |   | (219,931       | ) |   | (285,689       | ) |   | (197,551       | ) |   | (1,269,647     | )
|                                                                                    |   |                |   |   |                |   |   |                |   |   |                |  
|OTHER EXPENSES                                                                      |   |                |   |   |                |   |   |                |   |   |                |  
|Interest Expense,
      net                                                         |   | (14,865        | ) |   | (9,792         | ) |   | (36,839        | ) |   | (23,101        | )
|                                                                                    |   |                |   |   |                |   |   |                |   |   |                |  
|LOSS BEFORE INCOME TAXES                                                            |   | (234,796       | ) |   | (295,481       | ) |   | (234,390       | ) |   | (1,292,748     | )
|                                                                                    |   |                |   |   |                |   |   |                |   |   |                |  
|Income Tax                                                                          |   | -              |   |   | -              |   |   | -              |   |   | -              |  
|                                                                                    |   |                |   |   |                |   |   |                |   |   |                |  
|LOSS FROM CONTINUING
      OPERATIONS                                               |   | (234,796       | ) |   | (295,481       | ) |   | (234,390       | ) |   | (1,292,748     | )
|Gain from Operations of Discontinued
      Component, net of tax (note 3)           |   | -              |   |   | -              |   |   | -              |   |   | 2,151          |  
|NET LOSS                                                                            |   | (234,796       | ) |   | (295,481       | ) |   | (234,390       | ) |   | (1,290,597     | )
|Cumulative Translation Adjustment                                                   |   | (3,718         | ) |   | (6,060         | ) |   | 3,894          |   |   | (1,387         | )
|                                                                                    |   |                |   |   |                |   |   |                |   |   |                |  
|COMPREHENSIVE LOSS                                                                  | $ | (238,514       | ) | $ | (301,541       | ) | $ | (230,496       | ) | $ | (1,291,984     | )
|(Loss)/Income Attributable to
      Non-Controlling Interest                        |   | 899            |   |   | (811           | ) |   | (1,076         | ) |   | (14,184        | )
|NET LOSS ATTRIBUTABLE TO ALPHARX, INC                                               |   | (235,695       | ) |   | (294,670       | ) |   | (233,314       | ) |   | (1,276,413     | )
|Comprehensive (Loss)/ Income
      Attributable to Non-Controlling Interest         |   | 1,417          |   |   | (1,720         | ) |   | 584            |   |   | (14,392        | )
|COMPREHENSIVE LOSS ATTRIBUTABLE TO ALPHARX,
      INC., NET OF TAX                  |   | (239,931       | ) |   | (299,821       | ) |   | (231,080       | ) |   | (1,277,592     | )
|Net Income/(Loss) per Share,
      basic and diluted, attributable to AlphaRx, Inc. | $ | (0.01          | ) | $ | (0.01          | ) | $ | (0.01          | ) | $ | (0.01          | )
|Weighted Average Number of Common Shares
      Outstanding                          |   | 92,371,192     |   |   | 92,371,192     |   |   | 92,371,192     |   |   | 89,319,422     |  

See condensed notes to unaudited interim consolidated financial
statements

4

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ALPHARx, INC.INTERIM CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' DEFICIT FOR THE PERIOD ENDED JUNE 30, 2009
(UNAUDITED) (All amounts in US Dollars)

|                                 |  | Common Stock |  | AlphaRx, Inc. Shareholders |        |  |   |            |   |  
|-------------------------------- |  | ------------ |  | -------------------------- | ------ |  | - | ---------- | - | -
|                                 |  |              |  |                            |        |  |   |            |   |  
|                                 |  |              |  |                            |        |  |   |            |   |  
|                                 |  |              |  |                            |        |  |   | Additional |   |  
|                                 |  | Number of    |  |                            |        |  |   | Paid in    |   |  
|                                 |  | Shares       |  |                            | Amount |  |   | Capital    |   |  
|                                 |  |              |  |                            |        |  |   |            |   |  
|Balance as of September 30, 2007 |  | 81,203,964   |  | $                          | 8,122  |  | $ | 15,824,162 |   | $
|Warrants Amortization            |  |              |  |                            |        |  |   | 131,832    |   |  
|Warrants exercised               |  | 2,737,228    |  |                            | 273    |  |   | 273,450    |   |  
|Stock
      Options exercised    |  | 3,430,000    |  |                            | 343    |  |   | 274,407    |   |  
|Private Placement                |  | 5,000,000    |  |                            | 500    |  |   | 474,500    |   |  
|Foreign currency translation     |  |              |  |                            |        |  |   |            |   |  
|Non- controlling interest        |  |              |  |                            |        |  |   |            |   |  
|Net
      Loss 2008              |  |              |  |                            |        |  |   |            |   |  
|Balance as of September 30, 2008 |  | 92,371,192   |  | $                          | 9,238  |  | $ | 16,978,351 |   |  
|Warrants Amortization            |  |              |  |                            |        |  |   | 73,725     |   |  
|Unamortized Warrants             |  |              |  |                            |        |  |   | (36,863    | ) |  
|Foreign Currency Translation     |  |              |  |                            |        |  |   |            |   |  
|Non- controlling interest        |  |              |  |                            |        |  |   |            |   |  
|Net
      Loss for the Period    |  |              |  |                            |        |  |   |            |   |  
|Balance as of June 30, 2009      |  | 92,371,192   |  | $                          | 9,238  |  | $ | 17,015,213 |   | $

See condensed notes to unaudited interim consolidated financial
statements

5

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ALPHARx, INC.INTERIM CONSOLIDATED STATEMENTS OF
CASH FLOWSFOR THE THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 2009
AND 2008 (UNAUDITED)(All amounts in US Dollars)

|                                                                                       |   | 3 months |   |   | 3 months |   |   | 9 months |   |   | 9 months   |  
|-------------------------------------------------------------------------------------- | - | -------- | - | - | -------- | - | - | -------- | - | - | ---------- | -
|                                                                                       |   | June 30, |   |   | June 30, |   |   | June 30, |   |   | June 30,   |  
|                                                                                       |   | 2009     |   |   | 2008     |   |   | 2009     |   |   | 2008       |  
|CASH FLOWS FROM OPERATING
      ACTIVITIES                                             |   |          |   |   |          |   |   |          |   |   |            |  
|Net Loss Attributable to AlphaRx,
      Inc.                                           | $ | (235,695 | ) | $ | (294,670 | ) | $ | (233,314 | ) | $ | (1,276,413 | )
|Adjustments to
      reconcile net loss to net cash used inoperating
      activities: |   |          |   |   |          |   |   |          |   |   |            |  
|Depreciation and amortization                                                          |   | 16,444   |   |   | 18,775   |   |   | 48,788   |   |   | 60,006     |  
|Warrant
      amortization                                                             |   | -        |   |   | -        |   |   | -        |   |   | 197,795    |  
|Issuance of Warrants for services
      rendered                                       |   | 36,862   |   |   | -        |   |   | 36,862   |   |   | -          |  
|Changes in assets
      and liabilities:                                               |   |          |   |   |          |   |   |          |   |   |            |  
|Decrease
      (Increase) in accounts receivable                                       |   | 63,474   |   |   | (25,667  | ) |   | 1,473    |   |   | (30,386    | )
|Decrease (Increase) in other assets                                                    |   | 62,641   |   |   | (573     | ) |   | (3,259   | ) |   | (6,779     | )
|(Decrease)
      Increase in accounts payableand accrued liabilities                   |   | 49,728   |   |   | 56,137   |   |   | 56,487   |   |   | (170,913   | )
|Accrued interest on notes payable                                                      |   | 8,787    |   |   | 7,269    |   |   | 27,920   |   |   | 3,059      |  
|Increase
      (decrease) in deferred revenue                                          |   | (2,721   | ) |   | -        |   |   | 34,910   |   |   | -          |  
|Non-Controlling interest                                                               |   | (899     | ) |   | (811     | ) |   | (1,076   | ) |   | (14,184    | )
|Discontinued
      operations (Note 3)                                                 |   | -        |   |   | (1,656   | ) |   | -        |   |   | (17,848    | )
|NET CASH USED IN OPERATING
      ACTIVITIES                                            |   | (1,379   | ) |   | (241,196 | ) |   | (31,209  | ) |   | (1,255,663 | )
|                                                                                       |   |          |   |   |          |   |   |          |   |   |            |  
|CASH FLOWS FROM INVESTING
      ACTIVITIES                                             |   |          |   |   |          |   |   |          |   |   |            |  
|Purchase of Machinery & Equipment, net of
      disposals                              |   | -        |   |   | (9,569   | ) |   | -        |   |   | (9,983     | )
|NET CASH USED IN INVESTING
      ACTIVITIES                                            |   | -        |   |   | (9,569   | ) |   | -        |   |   | (9,983     | )
|                                                                                       |   |          |   |   |          |   |   |          |   |   |            |  
|CASH FLOWS FROM FINANCING
      ACTIVITIES                                             |   |          |   |   |          |   |   |          |   |   |            |  
|Issuance of Common Stock                                                               |   | -        |   |   | -        |   |   | -        |   |   | 1,023,473  |  
|Issuance of Notes Payable, net of repayments                                           |   | 44,553   |   |   | 228,585  |   |   | 111,765  |   |   | 160,879    |  
|NET CASH PROVIDED BYFINANCING ACTIVITIES                                               |   | 44,553   |   |   | 228,585  |   |   | 111,765  |   |   | 1,184,352  |  
|                                                                                       |   |          |   |   |          |   |   |          |   |   |            |  
|Effect of exchange rate changeson cash and cash equivalents                            |   | 17,463   |   |   | (5,987   | ) |   | (10,609  | ) |   | (6,899     | )
|NET INCREASE/(DECREASE) IN
      CASH                                                  |   | 60,637   |   |   | (28,167  | ) |   | 69,947   |   |   | (88,193    | )
|                                                                                       |   |          |   |   |          |   |   |          |   |   |            |  
|CASH, and cash equivalents,
      beginning of period                                  |   | 33,933   |   |   | 68,302   |   |   | 24,623   |   |   | 128,328    |  
|                                                                                       |   |          |   |   |          |   |   |          |   |   |            |  
|CASH, and cash equivalents,
      end of period                                        | $ | 94,570   |   | $ | 40,135   |   | $ | 94,570   |   | $ | 40,135     |  
|                                                                                       |   |          |   |   |          |   |   |          |   |   |            |  
|Taxes Paid                                                                             |   | -        |   |   | -        |   |   | -        |   |   | -          |  
|Interest Paid                                                                          |   | 6,227    |   |   | 1,586    |   |   | 6,227    |   |   | 23,419     |  

See condensed notes to unaudited interim consolidated financial
statements

6

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ALPHARX INC.CONDENSED NOTES TO UNAUDITED INTERIM
CONSOLIDATED FINANCIAL STATEMENTSJUNE 30, 2009 (UNAUDITED)

NOTE 1. NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS

The accompanying unaudited interim consolidated financial
statements have been prepared in accordance with the instructions to Form 10-Q
and do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of all recurring accruals) considered
necessary for fair presentation have been included. Operating results for the
interim periods are not necessarily indicative of the results that may be
expected for the year ended September 30, 2009. Unaudited interim consolidated
financial statements should be read in conjunction with the Company's audited
annual consolidated financial statements.

NOTE 2. NATURE OF BUSINESS AND GOING CONCERN

ALPHARX, INC. (the Company) was incorporated under the laws of
the State of Delaware on August 7, 1997. The company is an emerging
pharmaceutical company specializing in the formulation of human therapeutic
products using proprietary drug delivery technologies.

Effective June 30, 2006 AlphaRx International Holdings Limited.
(AIH) acquired 100% of AlphaRx Life Sciences Ltd. (ALS) for a nominal amount
and the assumption of approximately $63,000 of related party liabilities. ALS is
involved in obtaining necessary regulatory approvals for the manufacture and
distribution of the Company's products in the Asian market.

Effective June 22, 2006, New Super Limited, an independent Hong
Kong based corporation, subscribed for 1,500 shares or 15% of common stock of
AlphaRx International Holdings Limited. (AIH), previously a wholly-owned
subsidiary of the Company.

The Company holds an indirect 42.5% interest in AlphaAP Inc.
(AAP), a joint venture established between the Company (via its AIH
subsidiary) and Basin Industrial Limited (an independent third party). As the
Company contributes no funds, and does not provide management or direction to
the joint venture, the Company's interest in the joint venture is not
consolidated into the financial statements. AIH receives a 5% royalty on all
revenues generated by AAP. This joint venture is currently inactive.

The consolidated financial statements reflect the activities of
the Company, 100% of AlphaRx Canada Limited and 85% of AlphaRx International
Holdings Limited and AlphaRx Life Sciences Ltd. (AIH's wholly owned subsidiary).
All material inter-company accounts and transactions have been eliminated.

The accompanying unaudited interim consolidated financial
statements have been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. Accordingly, they do not include any adjustments relating to the
realization of the carrying value of assets or the amounts and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern. Continuance of the Company as a going concern is dependent on
its future profitability and on the on-going support of its shareholders,
affiliates and creditors. Factors relating to going concern issues include
working capital deficiencies, operating losses, shareholders' deficits, and
continued reliance on external funding sources. Continuance of the Company as a
going concern is dependent on its future profitability and on the on-going
support of its shareholders, affiliates and creditors. In order to mitigate the
going concern issues, the Company is constantly pursuing new business
arrangements and striving to achieve profitability, and seeking capital funding
on an ongoing basis via the issuance of Promissory Notes, and private placements. The
Company has contracted with two parties during the nine months ended June 30,
2009 for research and development consulting services that could also result in
future license fees and royalties. There is no assurance that such license fees
or royalties will materialize.

7

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NOTE 3. DISCONTINUED OPERATIONS

Interim statements of income and loss related to Flexogan
sales, which were discontinued, were as follows:

|Income statements                       |  | 3 months,     |  |  | 3 months,     |  |  | 9 months,     |  |  | 9 months,     | 
|--------------------------------------- |  | ------------- |  |  | ------------- |  |  | ------------- |  |  | ------------- | 
|                                        |  | June 30, 2009 |  |  | June 30, 2008 |  |  | June 30, 2009 |  |  | June 30, 2008 | 
|Sales                                   |  | -             |  |  | -             |  |  | -             |  |  | $2,151        | 
|Gain
      from discontinued Operations |  | -             |  |  | -             |  |  | -             |  |  | $2,151        | 

There were no assets or liabilities related to the discontinued
operations as of June 30, 2009 and September 30, 2008.

NOTE 4. NOTES PAYABLE

The Company issued approximately $111,765 in promissory notes,
net of repayments during the nine months ended June 30, 2009. During the nine
months ended June 30, 2008 the Company issued $382,107 in promissory notes,
before a discount of $83,596.

Promissory notes bear interest at rates of 10% - 12% per annum
and are repayable on the first anniversary date of issuance. Prepayment of these
notes prior to the first anniversary date is permitted.

See also note 9  Related Party Transactions.

NOTE 5. NON-CONTROLLING INTEREST

Effective June 22, 2006, AlphaRx International Holdings Ltd.
(AIH) issued 1,500 shares of its common stock to New Super Limited (NSL) at
a price of approximately $HK 6,667 per share or $HK 10 million in cash. (USD
$1,288,826). There are 10,000 common shares outstanding of which 8,500 or 85%
belong to the Company. With the consolidation of only 85% of AIH, a
non-controlling interest was established, representing net amounts owing to the
non-controlling shareholder. The capital infusion into AIH is accounted for as
additional paid in capital on the interim consolidated financial statements of
the Company.

NOTE 6. COMMON STOCK

The Company is authorized to issue 250,000,000 shares of common
stock. As of June 30, 2009, and 2008 there are 92,371,192 shares of Common Stock
issued and outstanding with a stated par value of $0.0001 per share.

The Company did not issue any shares of Common Stock during the
nine months ended June 30, 2009. During the nine months ended June 30, 2008 the
Company issued 11,167,228 restricted shares of Common Stock as follows:

Warrants were exercised to purchase
875,000 shares of Common Stock at $0.10 per share.

5,000,000 units, each unit consisting
of one share of Common Stock and a warrant to purchase one share of Common Stock
at $0.10, expiring December 31, 2009;

8

---

Officers, directors and consultants
exercised options to purchase 3,430,000 shares of Common Stock at an average
exercise price of $0.08 per share;

Michael Lee (CEO) exercised warrants to
purchase 1,862,228 shares of Common Stock at an exercise price of $0.10 per
share.

NOTE 7. STOCK OPTION PLAN

The Company has only one Stock Option Plan (the 2008 Plan)
under which officers, key employees, certain independent contractors, and
independent directors may be granted options to purchase shares of the Company's
authorized but unissued Common Stock. All outstanding options currently expire
no later than June 30, 2012. Proceeds received by the Company from exercises of
stock options are credited to Common Stock and additional paid-in capital.

At the Company's Annual General Meeting held November 26, 2008
a majority of stockholders approved amendments to the existing Stock Option
Plans including, among others: (i) combining the 2004 and 2006 Plans into the
2008 Stock Option Plan for ease of administration; (ii) providing a cap for
the number of options to be issued at 22,000,000; (iii) providing guidelines for
exercise prices such that the exercise price of any newly granted option is
never less than the market value or in the case of a 10%+ holder, never less
than 110% of the market value on the date of grant; (iv) providing for a maximum
term of 5 years for any option granted; (v) provide for a vesting schedule
whereby vesting must occur over at least 18 months with no more than
1/6th of the options granted vesting in any 3 month period; (vi)
providing for the maximum number of options to be granted to any one individual
in any 12 month period to be no more than 5% of the issued and outstanding
common stock, and (vii) providing for a maximum number of options to be granted
to any Investor Relations party to be no more than 2% of the issued and
outstanding common stock.

As a result of the new terms governing the Company's Stock
Option Plan, the maximum number of options that can still be issued totals
4,310,000, regardless of whether existing options are exercised or cancelled.

During the nine months ended June 30, 2009 no options were
granted and no options were exercised.

Additional details of the 2008 Plan are as follows:

|                                                                          |  | Number Granted/ |       |  |                          |  |  |             |  |  | Share    |      |  |             |  |  |              | 
|------------------------------------------------------------------------- |  | --------------- | ----- |  | ------------------------ |  |  | ----------- |  |  | -------- | ---- |  | ----------- |  |  | ------------ | 
|                                                                          |  | (Exercised,     |       |  |                          |  |  |             |  |  | Price on |      |  |             |  |  | Remaining    | 
|2008 Stock                                                                |  | Expired or      |       |  |                          |  |  | Exercise    |  |  | Date of  |      |  |             |  |  | Contractual  | 
|Option Plan                                                               |  | Cancelled)      |       |  | Issue Date               |  |  | Price $     |  |  | Grant $  |      |  | Expiry Date |  |  | Life (Years) | 
|Inception                                                                 |  | 0               |       |  |                          |  |  |             |  |  |          |      |  |             |  |  |              | 
|Granted                                                                   |  | 12,720,000      |       |  | 15/11/2004               |  |  | 0.15        |  |  | 0.11     |      |  | 6/30/2012   |  |  | 3.00         | 
|Cancelled                                                                 |  | (6,000,000      | )     |  | 12/28/2007               |  |  | -           |  |  | -        |      |  | -           |  |  | -            | 
|Granted                                                                   |  | 500,000         |       |  | 15/11/2004               |  |  | 0.40  0.50 |  |  | 0.11     |      |  | 6/30/2012   |  |  | 3.00         | 
|Cancelled                                                                 |  | (40,000         | )     |  | 12/28/2007               |  |  | -           |  |  | -        |      |  | -           |  |  | -            | 
|Expired                                                                   |  | (460,000        | )     |  | 2/10/2008                |  |  | -           |  |  | -        |      |  | -           |  |  | -            | 
|Granted                                                                   |  | 7,000,000       |       |  | 10/1/2005                |  |  | 0.16        |  |  | 0.14     |      |  | 6/30/2012   |  |  | 3.00         | 
|Granted                                                                   |  | 390,000         |       |  | 8/2/2005                 |  |  | 0.15        |  |  | 0.14     |      |  | 6/30/2012   |  |  | 3.00         | 
|Cancelled                                                                 |  | (40,000         | )     |  | 12/28/2007               |  |  | -           |  |  | -        |      |  | -           |  |  | -            | 
|Granted                                                                   |  | 100,000         |       |  | 5/25/2005                |  |  | 0.13        |  |  | 0.13     |      |  | 5/25/2010   |  |  | 0.89         | 
|Granted                                                                   |  | 3,290,000       |       |  | 10/17/2005               |  |  | 0.075       |  |  | 0.08     |      |  | 6/30/2012   |  |  | 3.00         | 
|Cancelled                                                                 |  | (560,000        | )     |  | 12/28/2007               |  |  | -           |  |  | -        |      |  | -           |  |  | -            | 
|Granted                                                                   |  | 90,000          |       |  | 1/3/2007                 |  |  | 0.10        |  |  | 0.10     |      |  | 1/3/2012    |  |  | 2.51         | 
|Exercised                                                                 |  | (2,730,000      | )     |  | 12/27/2007               |  |  | 0.075       |  |  | -        |      |  | -           |  |  | -            | 
|Remaining                                                                 |  | 14,260,000      |       |  | As at June30,
      2009 | 
|Weighted Average Exercise Price and Contractual Life of Options Remaining |  |                 | $0.15 |  |                          |  |  |             |  |  |          | 2.98 | 

9

---

During the nine months ended June 30, 2008 options to purchase
3,430,000 were exercised and options to purchase 7,660,000 shares of Common
Stock under the various Option Plans were cancelled with the agreement of the
option holders or in accordance with the Plans' terms and conditions.
Accordingly the 2000 Plan and the 2003 Plan no longer exist in any form. Also,
the expiry period of options under the 2004 and 2006 Plans was accelerated, with
the agreement of the option holders, such that all existing and future options
will expire in less than five years.

Additional information with respect to the various Plans' stock
option during the nine months ended June 30, 2008 was as follows:

|Options outstanding September
      30, 2007: |  | 25,810,000 |  
|--------------------------------------------- |  | ---------- | -
|Options exercised under the2004and2006Plans:  |  | (2,730,000 | )
|Options exercised under the2000and2003Plans:  |  | (700,000   | )
|Options cancelled under the2000and2003Plans:  |  | (1,020,000 | )
|Options cancelled under the2004and2006Plans:  |  | (6,640,000 | )
|Options expired February 10, 2008:            |  | (460,000   | )
|                                              |  |            |  
|Options remaining June 30, 2008:              |  | 14,260,000 |  

The Company has adopted the fair value accounting for employee
stock options as per SFAS 123(R) using the modified retrospective application
method, effective April 1, 2005. The Company did not record any stock based
compensation expense during the nine months ended June 30, 2009 and 2008. The
Black-Scholes option-pricing model is used to calculate this expense. There are
no further stock based compensation expenses to be recorded based on options
granted to date and their existing terms and conditions. Multiplying the options
by their exercise price and dividing the total obtained by the total outstanding
options calculated the weighted average exercise price.

NOTE 8. WARRANTS

The Company issued 3,000,000 warrants as of April 1, 2009
exercisable at $0.03 per share in exchange for financial advisory services. The
warrants expire on March 31, 2014. Warrant amortization in the amount of $73,725
was calculated using the Black-Sholes pricing model and the following
assumptions: expected volatility of 115.36%, risk free rate of return of 3.65%,
expected life of 5 years, a nil dividend rate and a nil forfeiture rate.

There were no warrants exercised during the nine-month period
ended June 30, 2009. The Company had 8,585,000 warrants outstanding to purchase
shares of Common Stock at June 30, 2009. Activity for warrants for the nine
months ended June 30, 2009 and warrant details as at June 30, 2009 are detailed
as follows:

10

---

|Outstanding |  | Weighted |  |  | Weighted     | 
|----------- |  | -------- |  |  | ------------ | 
|as at       |  | Average  |  |  | Average      | 
|September   |  | Exercise |  |  | Contractual  | 
|30, 2008    |  | Price    |  |  | Life (Years) | 
|7,260,000   |  | $0.10    |  |  | 1.02         | 

Activity during the nine months ended June 30, 2009

|(1,050,000) | Expired December 31, 2008                                                          
|----------- | -----------------------------------------------------------------------------------
|(625,000)   | Expired March 31, 2009                                                             
|3,000,000   | Issued on April 1, 2009
    exercisable at $0.03 per share, expiring March 31, 2014



|Outstanding |  | Weighted |  |  | Weighted     | 
|----------- |  | -------- |  |  | ------------ | 
|as at       |  | Average  |  |  | Average      | 
|June        |  | Exercise |  |  | Contractual  | 
|30, 2009    |  | Price    |  |  | Life (Years) | 
|8,585,000   |  | $0.08    |  |  | 2.06         | 

Details of outstanding warrants as at June 30, 2009

|          |            |          | Share  |            |              |                        
|--------- | ---------- | -------- | ------ | ---------- | ------------ | -----------------------
|          |            |          | Price  |            |              |                        
|          |            |          | on     |            | Remaining    |                        
|          |            | Exercise | Grant  | Expiry     | Contractual  |                        
|          | Issue Date | Price $  | Date $ | Date       | Life (Years) | Reason for Issuance    
|585,000   | 9/30/2007  | 0.10     | 0.08   | 9/30/2009  | 0.25         | Issuance of Promissory 
|          |            |          |        |            |              | Notes                  
|5,000,000 | 12/31/2007 | 0.10     | 0.26   | 12/31/2009 | 0.50         | Private Placement of   
|          |            |          |        |            |              | Units completed on     
|          |            |          |        |            |              | Nov 14, 2007 and       
|          |            |          |        |            |              | consisting of one share
|          |            |          |        |            |              | of common stock and    
|          |            |          |        |            |              | one warrant.           
|3,000,000 | 4/1/2009   | 0.03     | 0.03   | 3/31/2014  | 4.75         | Financial advisory     
|          |            |          |        |            |              | services               

The weighted average exercise price was calculated by
multiplying the warrants by their exercise price and dividing the total obtained
by the total outstanding warrants. The weighted average contractual life was
calculated by multiplying the warrants by their remaining contractual life and
dividing the total obtained by the total outstanding warrants.

There were 7,375,000 warrants issued and outstanding as at June
30, 2008. The following table details warrant activity during the nine months
ended June 30, 2008:

|Outstanding
      as of September 30, 2007 |  | Weighted Average Exercise Price |  |  | Weighted Average Contractual Life
      (Years) | 
|------------------------------------------ |  | ------------------------------- |  |  | ----------------------------------------------- | 
|14,336,663                                 |  | $0.22                           |  |  | 0.53                                            | 

Activity during the nine months ended June 30, 2008:

|(5,204,160) | Expired October 13, 2007                                                         
|----------- | ---------------------------------------------------------------------------------
|5,000,000   | Granted November 14, 2007 as part of a Private
      Placement of 5,000,000 units
|770,000     | Granted during Q1, 2008 based on issuance of
      Promissory Notes              
|(670,275)   | Expired December 19, 2007                                                        
|(1,862,228) | Exercised December 27, 2007 at $0.10 per
      share                             
|(300,000)   | Expired February 28, 2008                                                        
|(875,000)   | Exercised February 28, 2008 at $0.10 per
      share                             
|(3,050,000) | Expired March 31, 2008                                                           
|(770,000)   | Cancelled during three months ended June 30,
      2008                          

11

---

|Outstanding |  | Weighted |  |  | Weighted     | 
|----------- |  | -------- |  |  | ------------ | 
|as at       |  | Average  |  |  | Average      | 
|June        |  | Exercise |  |  | Contractual  | 
|30, 20098   |  | Price    |  |  | Life (Years) | 
|7,375,000   |  | $0.10    |  |  | 1.28         | 

NOTE 9: RELATED PARTY TRANSACTIONS

The Company sources some of its funding in the form of
promissory notes from directors. The directors did not loan any funds to the
Company during the nine months ended June 30, 2009 (approximately $56,000 net of
repayments during the nine months ended June 30, 2008). These loans attract
interest at 12% per annum and are unsecured.

Edward Lee, brother of Michael Lee (President & CEO of the
Company), received a commission of $25,000 in conjunction with the sourcing of
private placement funds related to the $500,000 issuance of Common Stock during
the nine months ended June 30, 2008. The net proceeds to the Company were
$475,000.

NOTE 10: RECLASSIFICATIONS

Certain amounts have been reclassified to conform to current
period presentation. Specifically the Company has adopted SFAS 160 
Non-controlling Interests in Consolidated Financial Statements. The objective of
this Statement is to improve the relevance, comparability, and transparency of
the financial information that a Company provides.

12

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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND PLAN OF OPERATION

The following discussion and analysis should be read in
conjunction with the Financial Statements, including the condensed Notes
thereto, appearing in this Form 10-Q. For additional information and complete
financial statement note disclosure as of September 30, 2008, reference should
be made to the annual Form 10-K filed during December 2008. Except for the
historical information contained herein the foregoing discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those projected in the forward-looking
statements discussed herein.

General

AlphaRx, Inc. is a drug delivery company specializing in the
development and improvement of FDA approved drugs by reformulating drugs via the
application of its proprietary site-specific nano drug delivery technology. Our
core competence is in the development of novel drug formulations for therapeutic
molecules or compounds that have exhibited poor gastro intestinal absorption due
to poor solubility or have yet be administerable to the human body with an
acceptable delivery method. Our drug delivery system -Bioadhesive Colloidal
Dispersion (BCD) drug delivery system is versatile and offers significant
flexibility in the development of suitable dosage formulations (i.e. oral,
topical or parenteral) to meet the requirements of specific drug molecules.
Drugs reformulated with our technology provide drug manufacturers with the
potential to extend patent protection for existing drugs.

We no longer pursue direct commercialization of our products
via advanced clinical trials, marketing and sales nor do we intend to pursue
such activities of any newly developed product candidates. The absence of
significant ongoing funding required to obtain necessary FDA and other country
approvals and promote a product successfully into the market are the principal
factors limiting our ability to commercialize and directly market our
proprietary products. We are and will continue to seek out established
collaborative partners, distributors and licensees to commercialize and market
our products in exchange for milestone payments and royalties.

The costs incurred for individual research and development
initiatives to date cannot be readily determined because (i) there is no clear
distinction between initiatives in order to be able to differentiate between
them; (ii) all initiatives have a common goal and that is to adopt our
Bioadhesive Colloidal Dispersion drug delivery technology to the specific drug
in order to improve that drug's effectiveness; and (iii) we do not maintain a
time control system to separately classify research and development activities
between similar initiatives.

The nature, timing and estimated costs to complete a research
and development initiative and anticipated completion dates cannot be estimated
because: (i) the nature of research is experimental and we could encounter
unforeseen situations which could significantly delay project completion or
require us to abandon the project; (ii) timing to complete a research initiative
depends, to a certain extent, on financial resources and we cannot predict with
any degree of certainty that financial resources will be available when needed
to complete any specific initiative; (iii) we cannot significantly influence our
partners and licensees as to timing and completion of collaborative efforts, and
(iii) cost estimates cannot be predicted with any acceptable degree of accuracy
due to unforeseen issues arising during the clinical stages or the approval
stages of any specific initiative.

If we cannot complete our research and development initiatives
on a timely basis consequences to our operations could be significant to the
point where the initiative would be delayed or even abandoned. We could also
face the risk of competitors developing the same or similar products and being
first to market.

13

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Finally, our failure to develop commercially feasible product
candidates on a timely basis could substantially impair our ability to generate
revenues and materially harm our financial position.

We cannot predict the timing of material net cash inflows from
significant initiatives due to a number of factors including (i) availability of
financial resources required to market a new product via a partner, (ii) our
lack of experience in bringing a new product to market successfully and gaining
market share; (iii) competitors' products and the nature and timing of their
marketing initiatives.

We intend to continue investing in the further development of
our drug delivery technologies and to actively seek collaborators and licensees
to accelerate the development and commercialization of products incorporating
our drug delivery system. Depending upon a variety of factors, including
collaborative arrangements, available personnel and financial resources, we will
conduct or fund initial clinical trials on such products and will undertake the
associated regulatory activities.

Recent Developments

We entered into a feasibility and option agreement with Gaia
BioPharma Limited, a privately held, early stage biopharmaceutical company,
during October 2008. Under the agreement we are using our BCD nano drug delivery
platforms to formulate an injectable version of GAI-122 for neuro, cardio and
hepatitis indications. Testing to date includes positive pre-clinical results in
multiple animal models of acute hepatitis. We have also reported positive
pre-clinical results on GAI-122 injectable nanoemulsion in multiple in vitro and
in vivo studies of memory impairment (delirium) in post-operative hospitalized
patients. Should development and commercialization of these product candidates
proceed beyond the formulation stage, we could earn development and sales
milestones as well as royalties based on net sales.

We entered into a co-development agreement with a global
specialty pharmaceutical company during October 2008 whereby we have been tasked
to develop a novel drug formulation using our proprietary drug delivery
technology. The company will have an exclusive option period to complete a
commercialization agreement with us within six months of completion of the
formulation. The extent and duration of consulting services for the initial
phase have been completed and we are awaiting a decision on if and when we are
to proceed with a second phase of consulting and formulation. It is too early to
determine whether these formulations will be commercially feasible. There is no
assurance that any further consulting services or any other form of revenues
will materialize with this customer.

One of our most promising drug candidates is Zysolin that uses
an inhalable version of the drug Tobramycin (an antibiotic used to treat
Gram-negative bacteria) to treat Gram-negative pneumonia. We have completed
animal testing on Zysolin and are in the process of preparing protocols for
Phase I/II human trials. We presented positive pre-clinical data on Zysolin
inhalable nanoparticles at the annual meeting and exposition of the Controlled
Release Society in Copenhagen in July 2009.

We have completed safety and efficacy testing on Streptomycin
(a drug used to treat tuberculosis) and are seeking collaborative partner(s) to
initiate human trials on this product candidate. We continue to test
formulations and conduct research on Vansolin (MRSA- pneumonia) and Streptomycin
(tuberculosis). The delivery route for all of the above product candidates is
Intravenous (I.V.) or Intratracheal (I.T.).

During March 2008 Cypress Bioscience, Inc. (Cypress)
completed the acquisition of our partner Proprius Pharmaceuticals Inc.
(Proprius). Proprius has development and commercialization rights for Indaflex
 our topical cream for the treatment of osteoarthritis of the knee. Additional
funding is now available through Cypress in order to further Phase II and III
human trials for Indaflex and continue the FDA application process. Under the
terms of our agreement, Proprius will undertake completion of clinical trials
for Indaflex and will have exclusive global rights (except for Asia and Mexico)
to sell and or sublicense Indaflex and any successor NSAID products developed by us. Should clinical
trials for Indaflex be successful and sales commence, we will receive clinical
trial completion milestone payments and sales milestone payments. In addition to
the milestone payments, we will receive royalty payments on sales of Indaflex by
Proprius, its affiliates and its sublicensees. There are no assurances or
guarantees that Proprius and or Cypress will continue with human trials of
Indaflex.

14

---

Our 85% owned subsidiary AlphaRx International Holdings Ltd.
(AIH), through its wholly owned subsidiary AlphaRx Life Sciences Ltd. is
seeking commercial arrangements and is responsible for the commercialization of
Indaflex and other potential product candidates in China. To that effect we have
established informal relationships with a China based partner who intends to
seek funding through National Program 863, a program established by the Chinese
government to award grants for science and technology projects with commercial
feasibility. Through a joint venture arrangement we would provide our
proprietary drug technology and development expertise while our partner would
establish a research and development facility and a pilot plant. There is no
assurance that we will succeed in any aspect of this initiative.

We suspended application to have the Company listed on the
Toronto Stock Exchange  Venture Market during October 2008 due to market
conditions and our stock price among other factors. We may continue to seek an
additional stock exchange listing depending on market conditions in order to
gain access to alternate possible funding arrangements.

Overview of Results of Operations

The following tables summarize the results of operations for
the eight quarters ended June 30, 2009 attributable to AlphaRx, Inc.:

|Three                                                |  | June 30  |   |  | Mar 31  |     |  | Dec 31  |   |  | Sep 30  |   |  | June 30  |   |  | Mar 31   |   |  | Dec 31   |   |  | Sep 30   |  
|---------------------------------------------------- |  | -------- | - |  | ------- | --- |  | ------- | - |  | ------- | - |  | -------- | - |  | -------- | - |  | -------- | - |  | -------- | -
|Months                                               |  | 2009     |   |  | 2009    |     |  | 2008    |   |  | 2008    |   |  | 2008     |   |  | 2008     |   |  | 2007     |   |  | 2007     |  
|Ended                                                |  | **$**    |   |  | **$**   |     |  | **$**   |   |  | **$**   |   |  | **$**    |   |  | **$**    |   |  | **$**    |   |  | **$**    |  
|Net
      Sales                                      |  | 20,982   |   |  | 164,109 |     |  | 103,574 |   |  | 16,326  |   |  | 46,798   |   |  | 17,243   |   |  | 17,132   |   |  | 95,891   |  
|Net
      Income (Loss) attributable to AlphaRx Inc. |  | (235,695 | ) |  | 23,420  | (1) |  | (21,039 | ) |  | (59,252 | ) |  | (293,761 | ) |  | (397,255 | ) |  | (585,189 | ) |  | (227,583 | )
|Net
      Income (Loss) per Share                    |  | (0.01    | ) |  | 0.00    |     |  | (0.00   | ) |  | (0.01   | ) |  | (0.01    | ) |  | (0.01    | ) |  | (0.01    | ) |  | (0.01    | )

(1) Originally reported as $20,951 in error during the initial
accounting period of SFAS 160 adoption  Non-controlling interests in
Consolidated Financial Statements. Loss attributable to Non-Controlling interest
should have been $2,469 higher, and Income attributable to AlphaRx, Inc. is
hence higher by the same amount for the three months ended March 31, 2009.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30,
2009, AS COMPARED TO THE NINE MONTHS ENDED JUNE 30, 2008

Net Loss attributable to AlphaRx, Inc. or the Company was
$(233,314) for the nine-month period ended June 30, 2009 as compared to the net
loss attributable the Company of $(1,276,413) incurred for the same period a
year ago, an improvement of $1,043,099 or about 82%. The Company signed two
co-development agreements in the nine months ended June 30, 2009 and generated
$240,413 in consulting revenues related to formulations for the period with no
comparable revenue during the same period a year ago. Operations in research and
development and general and administrative expenses have also been
cost-restructured realizing a cost savings of $853,386 for the nine months ended June
30,2009 as compared to the previous period. These factors are primarily
responsible for the reduced loss.

15

---

Revenues

Total revenues for the nine-month period ended June 30, 2009
were $288,665 as compared to $81,173 generated for the same period a year ago,
an increase of $207,492 or about 256 %. Royalty revenues were $48,252 for nine
months ended June 30, 2009 as compared to $81,173 for the same period a year
ago. The Company received a minimum royalty payment of about $32,000 during the
nine months ended June 30, 2008 with no comparable payment this year. Although
minimum royalties of about $70,000 are owing as of June 30, 2009 these revenues
have not been accrued due to the current economic climate and related
uncertainty of receiving the payment.

The Company generated consulting revenues in the amount of
$240,413 for the nine months ended June 30, 2009 with no comparable revenues for
the same period a year ago. Consulting revenues relate to the formulations of
compounds for one of our customers, which if pursued to commercialization, could
result in additional consulting revenues, license fees and royalties. There is
no assurance, however, that any such revenues will materialize.

General and Administrative Expenses

General and Administrative expenses consist primarily of
personnel costs related to general management functions, finance, office
overheads, as well as insurance costs and professional fees related to legal,
audit and tax matters.

General and Administrative expenses were $310,621 for the nine
month period ended June 30, 2009 as compared to $748,191 incurred for the same
period a year ago, a decrease of $437,570 or about 58%. We incurred warrant
amortization expenses of $36,862 related to financial services rendered during
the nine months ended June 30, 2009 as compared to $197,795 in warrant
amortization during the same period a year ago, a decrease of $160,932 or about
81%. There remains $36,863 unamortized warrant expense as at June 30, 2009. We
did not incur any stock exchange application fees for the nine months ended June
30, 2009 as compared to $159,167 incurred for the same period a year ago. We may
continue to seek an additional stock exchange listing depending on market
conditions in order to gain access to alternate possible funding arrangements.
Total staff costs were $99,018 for the nine months ended June 30, 2009
(excluding the warrant amortization expense mentioned above for financial
services) as compared to $203,594 for the same period a year ago, a decrease of
$104,576 or about 51%. All staff has taken salary and contract rate reductions
to be more aligned with available funding. Health benefit program has been
cancelled to save costs. We incurred $6,724 for insurance during the nine months
ended June 30, 2009 as compared to $16,673 for the same period a year ago, a
decrease of $9,949 or about 60%. As it has been more than 3 years since our
clinical trials with Flexogan we no longer required clinical trial
insurance.

Research and Development Expenses

Research and development expenses include costs for scientific
personnel, supplies, equipment, and outsourced clinical and other research
activities.

Research and development expenses for the nine months ended
June 30, 2009 were $126,807 as compared to $542,623 incurred for the same period
a year ago, a decrease of $415,816 or about 77%. We currently have 3 full time
staff at reduced salary rates as compared to 4 full time staff during the same
period a year ago. Staff costs totalled $101,161 for the nine months ended June
30, 2009 as compared to $329,907 incurred for the same period a year ago, a
reduction of $228,746 or about 69%. We have not retained any external research
and development services during the nine months ended June 30, 2009 whereas
during the same period a year ago, we incurred $149,140 in external research and
development expenses primarily related to animal testing for certain product
candidates. We incurred $25,645 in lab supplies and equipment leases during the
nine months ended June 30, 2009 as compared to $63,575 incurred during the same
period a year ago, a decrease of $37,930 or about 60%. We continue to hold down
our costs to be more in line with revenue expectations until capital markets
improve or additional funding is sourced. Research efforts will again increase
in the future depending on the timing and availability of additional funds.

16

---

Depreciation

Depreciation totalled $48,788 for the nine months ended June
30, 2009 as compared to $60,066 incurred during the same period a year ago, a
decrease of $11,278 or about 19%. Our capital asset purchases were minimized
during the last two fiscal years totalling less than $17,000. Certain assets are
now fully depreciated resulting in decreasing depreciation expense. Should any
assets become permanently impaired they are written off as determined.

Loss from Operations

Loss from operations was $(197,551) for the nine months ended
June 30, 2009 as compared to a loss of $(1,269,647) incurred for the same period
a year ago, an improvement of $1,072,096. Significant increase in revenues
coupled with significantly reduced expenses as compared to the same period a
year ago has resulted in a reduced net loss from operations.

Interest Expense

Interest expense for the nine months ended June 30, 2009 was
$36,839 as compared to interest expense of $23,101 generated during the same
period a year ago. There were approximately $526,000 in promissory notes
outstanding as of June 30, 2009 as compared to approximately $390,000 as of June
30, 2008, causing the increase in interest expense in the current period versus
the same period a year ago.

Gain from operations of Discontinued Component

We ceased entirely our sales of Flexogan during fiscal 2008 and
hence no such sales were generated during the nine months ended June 30, 2009 as
compared to $2,151 in sales for the same period a year ago.

Net Loss

As a result of the above revenues and expenses we incurred a
net loss of $(234,390) for the nine months ended June 30, 2009 as compared to a
net loss of $(1,290,597) incurred in the same period a year ago.

Additional Income and Expense Information

Additional income and expense information includes cumulative
translation adjustment, comprehensive loss, net losses attributable to
Non-Controlling Interest, and to AlphaRx, Inc, and comprehensive losses
attributable to Non-Controlling Interest and to AlphaRx, Inc. This information
is provided to increase transparency and to isolate Non-Controlling Interest
results from AlphaRx, Inc. results.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30,
2009, AS COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2008

The Company incurred a net loss of $(235,695) for the
three-month period ended June 30, 2009 as compared to a net loss of $(294,670)
incurred for the same period a year ago, an improvement of $58,975.

17

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Revenues

Total revenues for the three-month period ended June 30, 2009
were $20,982 as compared to $46,798 generated for the same period a year ago, a
decrease of $25,816 or about 55 %. Royalty revenues were $16,323 for the three
months ended June 30, 2009 as compared to $46,798 for the same period a year
ago. Although minimum royalties of about $70,000 are owing as of June 30, 2009
these revenues have not been accrued due to the current economic climate and
related uncertainty of receiving the payment.

The Company generated consulting revenues in the amount of
$4,659 for the three months ended June 30, 2009 with no comparable revenues for
the same period a year ago. Consulting revenues relate to the formulations of
compounds for one of our customers, which if pursued to commercialization, could
result in license fees and royalties. The initial formulation phase was
completed during the period ended June 30, 2009. There is no assurance that any
future consulting revenues, license fees or royalty revenues will materialize.

General and Administrative Expenses

General and Administrative expenses consist primarily of
personnel costs related to general management functions, finance, office
overheads, as well as insurance costs and professional fees related to legal,
audit and tax matters.

General and Administrative expenses were $184,883 for the three
month period ended June 30, 2009 as compared to $176,523 incurred for the same
period a year ago, an increase of $8,360 or about 5%. We incurred $36,862 in
warrant amortization expense in the three months ended June 30, 2009 with no
comparable expense for the same period a year ago. We did not incur and stock
exchange application fees during the three months ended June 30, 2009 as
compared to $43,886 during the same period a year ago.

Research and Development Expenses

Research and development expenses include costs for scientific
personnel, supplies, equipment, and outsourced clinical and other research
activities.

Research and development expenses for the three months ended
June 30, 2009 were $39,586 as compared to $137,189 incurred for the same period
a year ago, a decrease of $97,603 or about 71%. We incurred no third party
pre-clinical testing expenses during the three months ended June 30, 2009 as
compared to $48,723 incurred during the same period a year ago. Internal staff
costs totalled $34,338 for the three months ended June 30, 2009 as compared to
$86,463 incurred for the same period a year ago. One less full time staff and
reduced salary and contract rates reduced staff costs by $52,125 or about 60%
between periods. We incurred $5,248 in house for research materials and supplies
as compared to $2,003 incurred for the same period a year ago, an increase of
$3,245 between periods.

Research efforts are critical to future potential revenues and
commercial success of the Company and will increase as soon as additional
funding becomes available.

Depreciation

Depreciation totalled $16,444 for the three months ended June
30, 2009 as compared to $18,775 incurred during the same period a year ago, a
decrease of $2,331 or about 12%. Certain assets are now fully depreciated
resulting in decreasing depreciation expense. There have been no new asset
purchases since 2007. Should any assets become permanently impaired they are
written off as determined.

18

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Loss from Operations

Loss from operations was $(219,931) for the three months ended
June 30, 2009 as compared to a loss of $(285,689) incurred for the same period a
year ago, an improvement of $65,758. Reduced revenues between periods were more
than offset by reduced expenses resulting in a reduced loss between periods.

Interest Expense

Interest expense for the three months ended June 30, 2009 was
$14,865 as compared to interest expense of $9,792 incurred during the same
period a year ago. There were approximately $526,0000 in promissory notes
outstanding as of June 30, 2009 as compared to approximately $390,000 as of June
30, 2008, causing the increase in interest expense in the current period versus
the same period a year ago. Approximately $120,000 in promissory notes were
issued in June 2008 thereby not attracting interest expense for most of the
three months ended June 30, 2008.

Net Loss

As a result of the above revenues and expenses we incurred a
net loss of $(234,796) for the three months ended June 30, 2009 as compared to a
net loss of $(295,481) incurred in the same period a year ago.

Additional Income and Expense Information

Additional income and expense information includes cumulative
translation adjustment, comprehensive loss, net losses attributable to
Non-Controlling Interest, and to AlphaRx, Inc, and comprehensive losses
attributable to Non-Controlling Interest and to AlphaRx, Inc. This information
is provided to increase transparency and to isolate Non-Controlling Interest
results from AlphaRx, Inc. results.

LIQUIDITY AND CAPITAL RESOURCES

As at June 30, 2009 the Company had working capital deficiency
of $(829,326) as compared to a working capital deficiency of $(686,919) as at
September 30, 2008. On April 1, 2009 we issued 3,000,000 warrants to purchase
common stock exercisable at $0.03 per warrant and expiring March 31, 2014. These
warrants were issued in exchange for financial advisory services for a six-month
period. We issued no stock during the nine months ended June 30, 2009 as
compared to  11,167,228 restricted shares of Common Stock issued during the
nine months ended June 30, 2008.

We have a licensing arrangement with Andromaco, which provides
us with a small royalty stream. We entered into two co-development agreements
during the nine months ended June 30, 2009 and we continue to seek out new
arrangements. We also have licensing arrangements with Proprius Pharmaceuticals
Inc. (wholly-owned subsidiary of Cypress Bioscience Ltd.) and a joint venture
agreement with AlphaAP Inc., which may provide us with milestone payments and/or
royalty streams in the future. There is no assurance that such payments or
royalty streams will materialize.

Since inception, we have financed operations principally from
the sale of Common Stock and issuance of promissory notes and expect to continue
this practice to fund our ongoing activities.

We currently do not have sufficient resources to complete the
commercialization of any of our proposed products or to carry out our entire
business strategy. We must raise additional capital to fund our operations in
the future. We cannot be certain that any financing will be available when
needed on acceptable terms or at all. Any additional equity financings will be
dilutive to our existing shareholders, and debt financing, if available, may
require additional stock to be issued and/or involve restrictive covenants on
our business.

19

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We expect to continue to spend capital on:

|1. | research and development programs;                                                                  
|-- | ----------------------------------------------------------------------------------------------------
|   |                                                                                                     
|2. | preclinical studies and clinical trials;                                                            
|   |                                                                                                     
|3. | regulatory processes; and                                                                           
|   |                                                                                                     
|4. | third party licensees and distribution partners to
      manufacture and market our products for us.

The amount of capital we may need will depend on many factors,
including:

|1. | the progress, timing and scope of our research and
      development programs;                                  
|-- | ----------------------------------------------------------------------------------------------------------------
|   |                                                                                                                 
|2. | the progress, timing and scope of our preclinical studies
      and clinical trials;                            
|   |                                                                                                                 
|3. | the time and cost necessary to obtain regulatory
      approvals;                                               
|   |                                                                                                                 
|4. | the time and cost necessary to establish or to retain
      sales and marketing partners to market our products;
|   |                                                                                                                 
|5. | the time and cost necessary to respond to technological
      and market developments; and                      
|   |                                                                                                                 
|6. | new collaborative, licensing and other commercial
      relationships that we may establish.                    

The inability to raise capital would have a material adverse
effect on the Company. We currently have no capital commitments other than the
payment of rent on our facilities lease on a monthly basis, one leased
automobile and for certain research equipment.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

Certain of the information contained in this document
constitutes forward-looking statements, including but not limited to those
with respect to the future revenues, our development strategy, involve known and
unknown risks, uncertainties, and other factors which may cause our actual
results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the risks and
uncertainties associated with a drug delivery company which has not successfully
commercialized our first product, including a history of net losses, unproven
technology, lack of manufacturing experience, current and potential competitors
with significant technical and marketing resources, need for future capital and
dependence on collaborative partners and on key personnel. Additionally, we are
subject to the risks and uncertainties associated with all drug delivery
companies, including compliance with government regulations and the possibility
of patent infringement litigation, as well as those factors disclosed in our
documents filed from time to time with the United States Securities and Exchange
Commission.

ITEM 3. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

The Company's management, with the participation of the
Company's Chief Executive Officer and Chief Financial Officer and Principal
Accounting Officer, has evaluated the effectiveness of the Company's disclosure
controls and procedures as of June 30, 2009. The Company's Chief Executive
Officer and Chief Financial Officer and Principal Accounting Officer concluded
that the Company's disclosure controls and procedures are effective for
gathering, analyzing and disclosing the information the Company is required to
disclose in the reports it files under the Securities Exchange Act of 1934,
within the time periods specified in the SEC's rules and forms.

20

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PART II: OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

There are currently no legal proceedings against the Company or
any of its subsidiaries.

ITEM 2 - CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER
PURCHASES OF EQUITY SECURITIES

On April 1, 2009 we issued 3,000,000 warrants to purchase
Common Stock exercisable at $0.03 per warrant and expiring March 31, 2014. These
warrants were issued in exchange for financial advisory services for a six-month
period. We neither issued nor purchased any other equity securities during the
nine months ended June 30, 2009.

There were 92,371,192 shares of Common Stock issued and
outstanding as of June 30, 2009 and there would be 115,216,192 shares of Common
Stock issued and outstanding if all warrants and options were exercised as of
June 30, 2009.

We issued 11,167,228 shares of Common Stock during the nine
months ended June 30, 2008 as follows:

|Number of Shares        |  | Method of Issue   |  |   | Average         |  |   | Net Proceeds |  |   | Commissions | 
|----------------------- |  | ----------------- |  | - | --------------- |  | - | ------------ |  | - | ----------- | 
|of Common Stock         |  |                   |  |   | Price per Share |  |   |              |  |   | Paid        | 
|and
      Date of Issue |  |                   |  |   |                 |  |   |              |  |   |             | 
|5,000,000
    (1)       |  | Private Placement |  | $ | 0.10            |  | $ | 475,000      |  | $ | 25,000      | 
|Nov
      14,2007       |  |                   |  |   |                 |  |   |              |  |   |             | 
|1,862,228               |  | Warrant Exercise  |  | $ | 0.10            |  | $ | 186,223      |  |   | N/A         | 
|Dec
      27, 2007      |  |                   |  |   |                 |  |   |              |  |   |             | 
|3,430,000               |  | Option Exercise   |  | $ | 0.08            |  | $ | 274,750      |  |   | N/A         | 
|Dec
      27, 2007      |  |                   |  |   |                 |  |   |              |  |   |             | 
|875,000                 |  | Warrant Exercise  |  | $ | 0.10            |  | $ | 87,500       |  |   | N/A         | 
|Feb
      28, 2008      |  |                   |  |   |                 |  |   |              |  |   |             | 
|                        |  |                   |  |   |                 |  |   |              |  |   |             | 
|11,167,228              |  |                   |  | $ | 0.09            |  | $ | 1,023,473    |  |   |             | 

NOTE (1) We issued 5,000,000 Units consisting of 5,000,000
shares of Common Stock and warrants to purchase 5,000,000 shares of Common Stock
at $0.10 expiring December 31, 2009.

We cancelled options to purchase 7,660,000 shares of Common
Stock in accordance with the Stock Option Plan terms and conditions and with the
agreement of existing option holders during the nine months ended June 30, 2008.
An additional 460,000 options expired during the nine months ended June 30, 2008
and no new options were issued during this period. There remain 14,260,000
options outstanding as at June 30, 2009 and 2008.

During the nine months ended June 30, 2008 warrants to purchase
9,224,435 shares of Common Stock expired. We also issued 5,770,000 new warrants
in conjunction with the private placement of 5,000,000 shares of Common Stock
and in conjunction with the issuance of $154,000 in promissory notes during the
nine months ended June 30, 2008. Of these warrants 770,000 were subsequently
cancelled in May 2008. As a result of these transactions there were 93,371,192
shares of Common Stock issued and outstanding as at June 30, 2008.

21

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ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

N/A

ITEM 4 - OTHER INFORMATION

None.

ITEM 5 - EXHIBITS AND REPORTS ON FORM 8-K

(i) EXHIBITS.

|31.1 | Certification of C.E.O. Pursuant to Section 302
      of the Sarbanes-Oxley Act of 2002.                   
|---- | -----------------------------------------------------------------------------------------------------------
|31.2 | Certification of C.F.O. Pursuant to Section 302
      of the Sarbanes-Oxley Act of 2002.                   
|32.1 | Certification of Michael Lee pursuant to
      Section 1350 of Chapter 63 of Title 18 United States Code.  
|32.2 | Certification of Marcel Urbanc pursuant to
      Section 1350 of Chapter 63 of Title 18 United States Code.

(ii) REPORTS ON FORM 8-K

Not applicable

SIGNATURES:

Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

DATED: August 14, 2009

| | ALPHARx, INC.                          
| | ---------------------------------------
| |                                        
| | By: /s/   Michael M. Lee               
| | Michael M. Lee, Chief Executive Officer
| |                                        
| | Directors:                             
| |                                        
| | By: /s/   Michael M. Lee               
| | Michael M. Lee, Director               
| |                                        
| | By: /s/   David Milroy                 
| | David Milroy, Director                 
| |                                        
| | By: /s/   Ford Moore                   
| | Ford Moore, Director                   

22

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